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Terms for the Liberty Tax Refund Anticipation Loan

Some details of the terms of Liberty Tax Service's new refund anticipation loan product, known as the Instant Cash Advance, are becoming clear as the tax season approaches.

Through its non-bank subsidiary, JTH Financial, Liberty will charge $49.90 for the

instant cash advance. In addition, there will be a processing fee payable to the preparer and then an additional finance charge. The last charge will vary according to the size of the advance, which could be as large as $2,000.

With those terms, it is likely that most consumers will pay more than $60 for a RAL this year.

Liberty says that it will only begin to take applications for the ICAs on January 21st, and when they do, customers can expect to have to wait for 24 to 48 hours to receive the advance.

The loans come from JTH Financial. A few days ago, I posted an entry about where Liberty has been able to find a source for its short-term capital needs. A consortium of banks, led by SunTrust, have agreed to offer Liberty $170 million in financing. Liberty will have a term loan of approximately $25 million and a line of credit of as much as $145 million. To date, Liberty has not given the impression that they will draw on the full line of credit, but they do have that capacity.

It would probably be good news for Liberty if they needed to draw on the entire line of credit, because it would most likely mean that their non-bank subsidiary JTH Financial had been able to sell at at least 72,000 (more or less) instant cash advance products. If that demand was spread out over time, then such a draw could reflect even more.

Liberty has about 4,000 branches in the US and Canada. Approximately 300 of those branches are in Wal-Mart stores. According to comments made by John Hewitt during a December investor presentation, one of the operating strategies which it believes give the company a better value proposition to investors is its tendency to have more franchisee ownership of its stores.